Could South Africa Lead Global Housing Price Increases?

Avatar
Written by Dana Sanchez

South Africa and Brazil will lead global growth in the real estate market, with home prices expected to rise 6 percent in 2014, credit ratings agency Fitch predicted in a recent
report on housing prices and mortgages, according to OxfordBusinessGroup.

But despite the positive outlook, the rise in South Africa’s property values is expected to be slower than the 7.9-percent price increases seen in late 2013, the report said.

The outlook for South African real estate housing values in 2014 is good. South Africa and Brazil could lead the world with 6-percent increases, followed by the U.K. (5 percent), Australia (4 percent), Germany and Ireland (3 percent), and the U.S. (2 percent), according to the Fitch report.

The South African government’s recently announced budget includes some measures that directly benefit the real estate market and could provide general stimulus for the broader economy, OxfordBusinessGroup reports.

In early February, Fitch reported on the residential property market in South Africa, saying that while broader indicators are encouraging, the pace at which prices in the sector would rise in 2014 would ease somewhat compared to the past two years.

“Fitch expects nominal housing appreciation to slow down to approximately 6 percent a year over the next few years, in line with inflation,” the report said.

Demand for for high-end properties is expected to remain steady, but slower growth in the overall economy points to more moderate price increases than have been observed
in recent years, Fitch said.

In late 2013, housing prices were rising by around 7.9 percent year-on-year according to South African mortgage originator ooba. In December, First National Bank put the rate of increase at 6.5 percent and forecast similar growth for 2014.

South African lenders seem willing to extend credit for home purchases at a time when
lenders are generally pulling back on loan activity, OxfordBusinessGroup reports.

Overall lending activity could increase by as much as 8 percent, supported in part by residential mortgages, Standard & Poor’s reported in January. Local banks, however, are expected to rein in credit to some segments such as longer-term and larger unsecured loans.

Fitch made similar remarks, saying home loan performance had remained stable since 2011, following a spike in defaults in 2008 and 2009, with the agency forecasting little risk in the coming year.

Projections issued by the South African Reserve Bank suggest this could be a challenging
year for South Africa, OxfordBusinessGroup reports. Inflation is expected to hit 6.3 percent in 2014, above the central bank’s 3-percent-to-6-percent target. The reserve bank lowered its gross domestic product growth forecast for 2014 from 3 percent to 2.8 percent.

The combination of slower growth and higher inflation will erode domestic spending and reduce capital investment in the real estate market, Fitch and others said.

The 2014 budget presented Feb. 26 by Finance Minister Pravin Gordhan may ease some
of those challenges, the report said. Increased spending and support for smaller businesses could stimulate growth, which could impact positively on the property market later in 2014.

The budget didn’t have any plans or or incentives to help property buyers, but it did have some positive news for the real estate market, according to Andrew Golding, CEO of the Pam Golding Property Group.

These include increased social infrastructure, new spatial plans for cities, improved public transport and upgrading informal settlements, plus the announcement of 216,000 new homes to be built, Golding said.

Increased spending on social infrastructure such as education, health and community
facilities, transport links and utilities could also impact the real estate market. Improved services provide added value to properties, especially outside major cities where fast access coupled with inner-city standard infrastructure help boost sales.